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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 14729 / November 24, 1995
UNITED STATES SECURITIES AND EXCHANGE COMMISSION v. JOHN L. FAULS
III., Civil Action No. 95-C-5206 (filed September 12, 1995,
N.D.Ill.)
The United States Securities and Exchange Commission
(Commission) announced that on November 20, 1995, the Honorable
Marvin E. Aspen entered an Order of Permanent Injunction against
John L. Fauls III (Fauls), by consent.
The Commission's previously filed complaint alleged that
Fauls, while serving as a registered representative, head of the
fixed income department and principal of a broker-dealer
headquartered in Chicago, Illinois, engaged in a three year trade
interpositioning scheme to the detriment of the Union Carbide
Pension Fund (Pension Fund). In the scheme, Fauls would
interposition the broker-dealer and the Bank between the Pension
Fund and the market, needlessly increasing the transaction costs
for the Pension Fund and causing the Pension Fund to obtain less
than the open market price. In addition, Fauls executed
transactions but did not identify the customer until after they
determined whether the transaction was profitable. All
profitable transactions were allocated to the Bank. The Order
permanently enjoins Fauls from violations of Section 17(a) of the
Securities Act of 1933, Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder.
On May 3, 1994, Fauls was found guilty by a jury of mail
fraud, securities fraud, pension fund bribery and racketeering
arising out of the same activities. In October 1994, Fauls was
sentenced to serve 57 months in a federal prison, ordered to pay
restitution of $3.32 million and to forfeit $3.32 million under
the federal RICO statue. Fauls is currently incarcerated.